Late payments can put unnecessary pressure on a business’s cash flow. But did you know that, in certain circumstances, you may be entitled to charge late payment interest and claim compensation when another business fails to pay an invoice on time?
Under the Late Payment of Commercial Debts (Interest) Act 1998, as amended, qualifying commercial debts may attract statutory interest and recovery compensation.
When Can You Charge Late Payment Interest?
For qualifying business-to-business transactions, statutory interest is generally calculated at 8 percentage points above the applicable Bank of England reference rate.
However, your contract matters. If your agreement specifies a different interest rate, statutory interest may not apply. Contractual terms should therefore be reviewed carefully to establish your rights.
Can You Claim Additional Compensation?
Where statutory interest applies, businesses may also be entitled to fixed compensation based on the outstanding debt:
- Under £1,000: £40
- £1,000 to £9,999.99: £70
- £10,000 or more: £100
Additional reasonable recovery costs may also be recoverable in qualifying circumstances.
How Do You Calculate the Interest?
Rather than guessing how much to charge, use the official Small Business Commissioner’s interest calculator.
You can also read the GOV.UK guidance on late commercial payments.
Is Charging Interest Always the Best Approach?
Although interest and compensation can help discourage late payment, recovering the original invoice is often the immediate priority.
Before taking action, consider the amount outstanding, the payment history, the contractual terms and whether the customer is experiencing genuine financial difficulties.
Sometimes a conversation or an agreed payment arrangement can achieve more than simply adding charges.
Need Help Tackling Outstanding Invoices?
At Talk to Ron, I help business owners understand their outstanding debts and explore practical ways to recover money owed to them.
If late-paying customers are affecting your cash flow, get in touch for a no-obligation, thirty-minute conversation about how I may be able to help.